Dallas Morning News:
Mexico needs bigger oil reforms

Editorial

When the U.S. economy sneezed last year, Mexico didn't just catch a cold. It got the economic equivalent of swine flu and now faces its worst decline in 77 years. Mexico's two biggest sources of hard currency – oil exports and remittances from migrants in the United States – are drying up at an alarming pace.

Not my problem, you might think. But the Texas economy relies heavily on Mexico, which bought $62.1 billion in goods and services from Texas in 2008 – 32 percent of our total exports. Mexico can't buy products if it can't pay for them, which is why we should pay close attention to President Felipe Calderón's ongoing efforts to make Mexico's state oil monopoly, Petroleos Mexicanos, more profitable and efficient.

Pemex is Mexico's cash cow, providing 40 percent of the country's revenue. The company is a mess, with a thick bureaucracy and even more bloated workforce of 143,000 employees. Before Calderón's National Action Party came to power in 2000, Pemex was a primary funding source behind the Institutional Revolutionary Party's seven-decade stranglehold on power. To this day, whenever Calderón tries to reform Pemex, the PRI old guard erects substantial political roadblocks.

Last year, Calderón won passage of a meek reform package aimed at loosening Pemex's monopoly control. For its own good, Pemex needs to attract outside investment and expertise. But Mexico's constitution won't allow the kinds of production access and profit sharing that would entice private investment.

The result is that proven reserves are falling, and the country's biggest oilfield in the Gulf of Mexico is producing less than 600,000 barrels per day, a quarter of its 2004 output. With most major oil fields in production decline, Mexico is fast becoming a net oil importer. Brazil, by contrast, is enjoying an oil production boom as it opens its energy sector to private investment.

It's not that Mexico is running out of oil. British Petroleum has discovered two massive fields in the Gulf of Mexico containing up to 12 billion barrels. Mexico's best prospects for new oil reserves lie in those same deep Gulf waters, but "We don't have ... the technology or the organizational and operational capacity to do it by ourselves," Calderón recently told a radio interviewer. It won't happen as long as Mexican law keeps holding foreign petroleum companies at bay.

Calderón knows he must tread lightly in bringing about the changes Pemex needs. Last month, he replaced the company's chief officer and is testing the political waters for a new round of reforms to inch Mexico closer to the goal line. His caution is understandable, but he must find a way to convey a sense of urgency.

Time is a luxury Mexico no longer has, and Pemex's exclusivity is a luxury Mexico can no longer afford.

Dallas Dallas Morning News is one of texas most influential news daily Petroleumworld not necessarily share these views

Editor's Note: This
commentary was originally published by The Dallas Morning News, 10/12/2009.
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